Even after this week's sell-off, stocks are still way up this year. The Dow, S&P 500 and Nasdaq have gained between 11% and 13% since the start of January.

The Fed has been a major driver of the bull market over the past few months as it has injected liquidity into the markets. Traders say the coming shift in monetary policy will mean even more volatility in the months ahead.

The CBOE Market Volatility Index(VIX) was up almost 2% Friday, a day after surging 23%. CNNMoney's Fear and Greed Index remained in Extreme Fear mode.

Japan's Nikkei index posted a 1.7% bounce, closing the week with a gain of 4.3%.

But Chinese stocks continued to head lower as investors worried about tighter liquidity conditions across the country and a slump in manufacturing activity.

Nomura analysts said Chinese government policies seem to be the reason for the cash crunch.

"Since mid-March, the government has introduced a series of tightening measures in the shadow banking sector to contain financial risks," they said in a research note. "The People's Bank of China could have reacted and injected liquidity through open market operations. Its decision not to intervene shows that it is committed to tightening the policy stance."